CHAPTER 08

1. CHAPTER 08 Joint Products and Byproducts

2. Joint Products • Joint products are two or more products separated in the course of processing, each having sufficiently high saleable value. For example: • Products from oil refining process petrol and deisel. • There will be joint cost for producing these products and these costs will be distributed over products using different methods.

3. Methods of distribution of Joint Costs • Physical unit Method • Sales Value of production at split off point • Net Realisable Value ( Expected final sales price – further expenses to process)

4. Physical-Measure Method • Allocates joint costs to joint products on the basis of the relative weight, volume, or other physical measure at the splitoff point of total production of the products

5. Sales Value at Splitoff Method • Uses the sales value of the entire production of the accounting period to calculate allocation percentage • Ignores inventories

6. Net Realizable Value Method • Allocates joint costs to joint products on the basis of relative NRV of total production of the joint products • NRV = Final Sales Value – Separable Costs

7. Sell-or-Process Further Decisions • In Sell-or-Process Further decisions, joint costs are irrelevant. Joint products have been produced, and a prospective decision must be made: to sell immediately or process further and sell later. • Joint Costs are sunk • Separable Costs need to be evaluated for relevance individually

8. Sell-or-Process Further Example Final Sales Value= units x sales price per unit after processing = 200,000 Sales value at Split off = units x sales price per unit at split off =(150,000) Incremental Revenues = 50,000 Further processing costs = (40,000) Profit or (Loss) due to further process = 10,000

9. By Products • By products are outputs of some value produced incidentally in manufacturing something. For example: • Sawdust and bark are secondary products from timber industry.

10. Byproducts • Two methods for accounting for byproducts • Production Method – recognizes byproduct inventory as it is created, and sales and costs at the time of sale • Sales Method – recognizes no byproduct inventory, and recognizes only sales at the time of sales: byproduct costs are not tracked separately

11. Comparative Income Statements for Accounting for Byproducts

12. Questions

13. Exercise No.01 The Builden Company produces three joint products Builden, buildeze and Buildrite. Total joint production cost for the November was $21,600 Additional Data: BuildenBuildezeBuildrite Units produced 6000 8000 10,000 Sales price per unit $2.2 $1.25 $1.28 Required: Allocation of cost among products using: • The Sales Value Method • The Physical Unit Method

14. Exercise No.02 The Tracy company manufactures joint products X and Y as well as Byproduct Z. Cumulative cost data for the period show $204,000, representing 20000 completed units processed in Refining Department at an average cost of 10.20. Costs are assigned to X and Y by Net Realizable value method which considers further processing costs in subsequent operations. To determine the cost allocation to Z, the production method is used. Additional Data: Z X Y Quantity processed 2000 8000 10,000 Sales price per unit $5 $20 $25 Further processing cost per unit $1 $5 $7 Marketing and admin exp $1 Required: Cumulative cost allocated to Z,X and Y.

15. Exercise No.03 The Domecq Company produces three products using A, B and C as a result of initial joint processing plus separable further processing. Records show the following : A B C Units produced 6000 12000 6250 Units sold 4000 9000 4250 Further processing costs $50,000 $80,000 $70,000 Sales price per unit $50 $37.50 $40.00 Total Joint Costs: $320,000 Required: calculate the following using NRV method: • Total production cost of each product. • Total profit of each product.

16. Exercise No.04 CBA Company produces three products using C, B and A . During February the following information was recorded: C B A Units produced 2000 5000 3000 Units sold 1500 4200 2400 Further processing costs $8,000 $5,000 $2,000 Sales price per unit $10 $6 $7 Total Joint Costs: $28,000 Required: calculate the: • Total production cost of each product using NRV value method. • Total profit of each product.

17. Exercise No.05 Vreeland Company produces three products X, Y and Z . The joint cost totals $60,000. Additional information was recorded: X Y Z Units produced 2000 4000 2000 Further processing costs $9,000 $7,000 $5,000 Market value at split off $40,000 $35,000 $25,000 Final market value $55,000 $45,000 $30,000 Required: calculate from the above figures: • Total production cost of each product using Net Realizable Value method. • Total production cost for each product using the average unit method.

18. Exercise No.06 Newport Company produces three products R, S and T . The joint cost totals $350,000. Additional information was recorded: R S T Units produced 20,000 50,000 30,000 Further processing costs$40,000 $60,000 $30,000 Unit sales price $7 $5 $8 Required: calculate from the above figures: • Gross Profit of each product assuming that all units produced were sold using Net Realisable value method. • A decision as to whether Product R should be sold at the split off point for $4.5 per unit or processed further and sold for $7 per unit.

19. Exercise No.07 The Laerock Company ‘s joint cost of producing 1000 units of product A, 500 units of product B and 500 units of product C is $100,000. The unit sales values of three products at split off point are A-$20; B-$200; C-$160. Ending inventories include 100 units of A, 300 units of B and 200 units of C. Required: The amount of joint cost that would be included in the ending inventory of the three products using Sales value method and average unit cost method.